Indonesia, Exxon Mobil Halt Natuna Gas Talks

Reuters

Tuesday, 25 Sep 2007 | 7:39 AM ETReuters

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Indonesia and Exxon Mobil have halted negotiations on the disputed Natuna D-Alpha gas block, which is now controlled by the U.S. company, an official at energy watchdog BPMIGAS told Reuters on Tuesday.

Talks on the offshore gas project, estimated to require investment of about $40 billion, have run into several problems, attracting the attention of foreign investors who are already wary of committing money to Southeast Asia's biggest economy because of its weak legal system, bureaucracy and corruption.

The most recent setback over Natuna has arisen because the two parties involved cannot agree on how to split the gas produced, the official said, but other unresolved issues include the length of Exxon's contract.

Now the Indonesian side is waiting for the government to issue new instructions before talks can resume.

Exxon controls a 76% stake in the Natuna block while Indonesian state oil and gas firm, Pertamina, owns 24% and would like to increase its stake to half.

Indonesia also says that Exxon's contract giving it that 76% share has expired, whereas the energy major has said the contract is valid until 2009.

The BPMIGAS official, who asked not to be identified by name, said the two sides stopped talking recently because they could not agree on how to split the gas produced from the block.

"Indonesia wants a 65% split for the government and 35% for the contractor. Exxon has rejected the proposal because it wants more," the official said.

"We can say the talks on Natuna are in deadlock. The Indonesian negotiating team has reported to the government about the differences," the official added.

An Exxon Mobil spokeswoman in Jakarta said she could not comment on the negotiations.

Arbitration?

A former Pertamina official, Gatot Wiroyudo, said foreign investors such as Exxon Mobil require more certainty for their contracts such as the production split, or such disputes could end up in arbitration.

"If it is brought to arbitration, it can have serious consequences. Exxon is a multinational company with an international network. It will also have political impact," said Wiroyudo, who now lectures on energy at Trisakti University.

The Natuna D-Alpha block has around 222 trillion cubic feet (tcf) of gas reserves, of which about 46 tcf is thought to be commercially recoverable.

The block, which is about 1,100 km (680 miles) north of Jakarta and 200 km east of the West Natuna fields that feed gas to Singapore, accounts for about a quarter of Indonesia's total commercially recoverable gas reserves of 182 tcf.

Indonesia's mines and energy Minister Purnomo Yusgiantoro said in July that the price of Natuna gas, which contained around 70% carbon dioxide, is still too high, making it expensive to develop and difficult to sell.

Indonesia has said it wants Pertamina to be the majority shareholder in Natuna. The state oil firm said in January that it wanted to increase its stake to 50%.